General Motors Company
) will repurchase 200 million shares from the U.S. government for
$5.5 billion as the Obama administration plans to wind down the
Troubled Asset Relief (TARP) program, originally created by the
former president George W. Bush to save the U.S. banking industry
during the financial crisis in 2007-2009. The deal reflects an
average price of $27.50 for the Treasury-held shares.
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Post-sale, the stake of U.S. Treasury (UST) in the company will
be reduced to 19% from 26.5%. As a result, the buyback will help
the automaker shed its "Government Motors" tag significantly.
Further, it will boost the company's earnings per share, as it
will lower the company's shares outstanding by roughly 11%.
GM filed for bankruptcy in mid-2009. Post bankruptcy, the U.S.
government acquired 61% stake in GM in exchange for a bailout
loan of $49.5 billion. However, after several repayments
amounting to $23.1 billion, the UST was left with 500.1 million
shares of GM, equivalent to 26.5% stake in the company, and $26.4
billion in loans to be recouped.
UST plans to sell its remaining 300.1 million shares in the
company through various means (including open market sale) in the
next 12-15 months. It will begin the process in January next
If the government sells the remaining 300.1 million shares at
$27.50 per share, currently paid by GM, UST would fall short of
$12.7 million in its loan recovery. However, the government
doesn't bother about that, as saving the jobs was much greater an
issue than considering the bailout fund as an investment and
profiting out of it.
According to GM Chief Financial Officer Dan Ammann, the share
buyback will be funded through cash and not tap in to the $11.0
billion credit line secured by the company last month. Due to the
buyback, GM will incur a charge of about $400 million in the
fourth quarter of the year.
UST has been shedding its stake in many companies, bailed out
under the TARP program during the period of financial crisis few
years back. Last year, the Treasury sold its remaining 6% stake
in Chrysler, controlled by Italy's
GM, a Zacks #3 Rank (Hold) company, posted a 9.7% fall in
earnings to 93 cents per share (excluding special items) in the
third quarter of the year from $1.03 in the corresponding quarter
a year ago. However, earnings per share in the quarter far
exceeded the Zacks Consensus Estimate of 61 cents.
Total profit ebbed 5.9% to $1.6 billion from $1.7 billion a year
go. The decline in profit was attributable to lower profits from
North America and increased loss in Europe.
Revenues in the quarter grew 2.5% to $37.6 billion, surpassing
the Zacks Consensus Estimate of $36.3 billion. Worldwide sales
volume inched up 1.6% to 2.3 million units from 2.2 million units
a year ago. However, total market share declined to 11.6% from
12.1% in the third quarter of 2011.
Operating income fell 11.2% to $1.6 billion from $1.8 billion a
year ago. However, adjusted earnings before interest and tax rose
4.5% to $2.3 billion from $2.2 billion a year ago.